Key speech to set out economic plan

Prime Minister John Key will outline his plans for the economy and give some details of likely changes to the tax system when Parliament sits tomorrow for the first time this year.

The speech would outline the Government's agenda for the year ahead, Mr Key said in interviews on TV1's Breakfast and NewstalkZB this morning.

"(The public) will be able to see where we are going, what we are doing. We will tackle some of the bigger issues like tax," he said.

"You can expect in there to see our response to the Tax Working Group to give New Zealanders an indication of where we may or may not go. We will be reasonably specific. I don't think you will come away from the speech wondering what we are saying."

The Tax Working Group last month released its recommendations to revamp the tax system which it says is broken and needs comprehensive reform. It proposed reducing personal tax, increasing GST from 12.5 percent to 15 percent, a method of taxing capital gains on residential rental properties and a low-rate land tax. It said the company, top personal and trust tax rates should be aligned to improve the integrity of the tax system.

Also, it wanted depreciation rules tightened up and tax loopholes closed including on property.

There has been intense debate about all the recommendations -- for example, some say that rents will become very expensive if landlords have to pay more tax.

Mr Key said not everyone would be happy with what the Government laid out tomorrow.

"But when it comes to tax, you will come out with a system that's more robust, that's fairer and that puts the right incentives in the economy.

"We've got to get to a point where we've got that."

He said the tax system had been favouring people to have rental property and it was hypothetically possible for some investors to avoid paying any tax.

"There are hundreds of hundreds of thousands of Kiwis then who are paying for you to drive on the roads, for you to access the health system, for you to have superannuation in your retirement, for you to educate your kids. That's not fair and a lot of those people are low to middle income New Zealanders so I am just trying to put a bit of balance in the economy."

Mr Key said 2010 was a crucial year, as the public had given the new government facing a recession "a fair bit of slack" last year.

The Government had promised to lift economic growth, make New Zealand safer and lift education standards.

"I think we have delivered on two of those... we've got a long way to go on the economic side."